In Business Model, Internet Access, Spectrum

There is a good reason why regulators, policymakers and consumers who want more competition, and better quality services continually look to wireless or mobile platforms. Those generally are less costly ways to compete, have clear consumer demand and better payback economics, can be deployed and upgraded faster. Now, with advanced in 4G and coming 5G networks, wireless will plausibly be able to compete with fixed networks for the first time, in terms of speed.

As one example, consider that policymakers, regulators and analysts continually debate whether three or four mobile operators can sustain themselves in a market. In the fixed network segment, it is rare for most observers to argue vigorously that more than one or perhaps two fixed networks actually are sustainable, long term.

One example of the tougher business model for fixed networks comes from a new analysis of facilities-based competition in the United Kingdom. That study  tends to support the view that ubiquitous fixed network on a facilities basis will tend to be a duopoly; that a third network offering triple-play services would not be able to cover most of the country, even under the most-optimistic scenarios.

In other words, three fixed network providers might sustain themselves in parts of the national market, but will have difficulty surviving across most of the national footprint. That conclusion likely comports with the notions most researchers have reached, namely that facilities-based and ubiquitous fixed access network markets are oligopolies, because that is all the market will tend to support.

The only issue here is whether the stable oligopoly structure (in terms of facilities) features two providers or can include three (and if so, under what conditions).  That is not to say an oligopoly at the retail level is inevitable: robust wholesale policies have proven effective at stimulating retail competition. What robust wholesale has tended not to promote is investment in new facilities.

Analysys Mason researchers estimate that, at about 25 percent market share, a third facilities-based provider would be able to sustain access to about seven percent (two million locations) of homes. The study tends to reconfirm that housing density encourages investment. But the study also suggests that robust wholesale policies actually discourage investment. The researchers note that the greatest degree of facilities-based competition elsewhere in Europe relies on duct and pole access by competitors in countries where there is no wholesale regime in place.

In other words, where competitors must build their own facilities, and have some clear incentives to do so, facilities-based investment is most robust. Also, third parties seem to have been most successful where the percentage of high-density housing is high.

The study authors conclude that investment in a third facilities-based network is highly risky and unlikely to succeed in the U.K. market, on a wide basis, though the business case might work in some high-density areas representing about 1.1 million households.

The analysis concluded that “it is highly unlikely that a third operator will be able to reach 40 percent (FTTP) coverage on a commercially viable basis”.

“Our economic modelling suggests that encouraging a third separate network to invest in covering more than five to 10 percent of the country will be extremely difficult to achieve,” the study states. Some might point to the key role cable TV competition tends to play, as well. In several countries, the primary facilities-based competition comes from cable TV operators.

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